Cross-border M&As to get a Modi boost

Global banks look for expanding team after three years of lull

Big-ticket cross-border mergers and acquisitions (M&As), which took a beating in a slowing economy and uncertain regulatory environment, are set to get a boost with the new government at the Centre under Narendra Modi promising reforms.

“The mandate that has been given to the new government and its message that it plans to focus on development are hugely positive for anyone looking to invest in India,” said Raj Balakrishnan, head of investment banking at the Indian arm of Bank of America Merrill Lynch.

This comes when the global deal volume is up 60 per cent to $1.2 trillion as companies in developed markets, such as the US and Europe, are seeking to merge to cut costs. The deal between European cement producers Holcim and Lafarge is a prominent example of this consolidation trend.

“As global liquidity is very comfortable, Indian stocks are getting re-rated and global M&A environment is improving significantly, we expect both outbound and inbound M&A environment to improve,” said Manisha Girotra, chief executive at US investment bank Moelis & Company’s local arm.    

Consolidation has begun in the country also. In the pharmaceutical sector, Sun Pharmaceutical Industries recently bought Ranbaxy Laboratories and Torrent acquired Elder Pharmaceutical’s local formulation business. Adtiya Birla Group’s cement maker UltraTech has bought Jaypee Cement’s Gujarat plant. As confidence among Indian industrialists about growth in the country rises, M&As are expected to pick up further as they put in more capital to build scale.

“In India, with increased optimism about growth, regulatory clarity and a significant improvement in access to capital, we expect to see outbound M&A activity to gradually pick up,” said Gaurav Mehta, head of corporate client solutions at UBS Securities. UBS expects to first see an increase in inbound M&A negotiations in health care, consumer goods, telecommunications, media and technology sectors. Subsequently, it believes, Indian companies will start scouting for acquisitions abroad.

This augurs well for the investment banks advising and executing these transactions; these have not seen any significant hiring in the past three years, said Vedika Bhandarkar, vice-chairman at the local arm of Swiss investment bank Credit Suisse.